What’s Up, What’s Down: Spotlight on Bonds

Comments for May 20, 2011

Looking ahead to Friday by reflecting back on Thursday’s trading

Futures and options trading is speculative in nature and involves substantial risk of loss. Futures and options trading is not suitable for all investors.

TREASURY FUTURES JUNE/SEPTEMBER ROLL-OVER BEGINS NEXT WEEK

The week of May 23rd is the start of Treasury Bond and Note futures roll-over at the Chicago Board of Trade.

Tracking the Pace of the Roll

Rollover is when a new contract month becomes the dominant contract in terms of new volume, for both pit (open outcry) and electronic trading sessions. For Treasury notes and bonds. rollover traditionally begins the week prior to the First Notice Day (May 31, 2011) of the nearby contract. Treasury roll-over comes so much sooner than for stock indices, because the Treauries are physical-deliver contracts. So beginning the week of May 23rd, the larger section of the trading floor pits will now be trading September and the June contracts will be moved to the back, or smaller section of the pit. On the trading floor, September will then be referred to as the “front month” insofar as Bond & Note futures trading is concerned. We don’t have quite the same issue with electronic platforms, so the Globex rollover is more symbolic.

CME Group now reports what is referred to as the “Pace of the Roll” available online and can be tracked at special pages at CMEGROUP.com at a section titled Treasury Pace of the Roll.

T-Bonds, 2,5 and 10 year T-Notes’ volume and open interest are updated daily to reflect the progression of roll activity in both tabular and graphics formats at the Pace of the Roll Website. Monitor the pace at which open interest is migrating from the June to the September contract.

In early morning trading, the Stock Indices sector is showing slight weakness. My Futures HeatMap, a color-coded view of the eight futures market sectors, shows that the stock index futures, as of 8:00 am Central this morning (May 20), are down a composite 0.25%, with all five contracts which comprise the Group, trading lower for the day. The morning “bullish” leader is Metals, which as a group, are trading higher for the day (up a composite +0.32%). To view the Heat Map, click, or type this link into your browser: https://www.markethead/2.0.com.

Rick Alexander has been a broker and analyst in the futures business for over thirty years. He is a Vice-President for Sales and Trading at the Zaner Group (www.zaner.com) a Chicago-based futures brokerage firm. Email Rick at ralexander@zaner.com or call toll-free (888) 281-4158.

Futures and options trading is speculative in nature and involves substantial risk of loss. Futures and options trading is not suitable for all investors. The information in this Report and the opinions expressed are subject to change without notice. All known news and events have already been factored into the price of the underlying commodities discussed.